Avoid Debt Elimination Scams

You've heard the commercials on the radio and you've seen them on TV: “Eliminate your credit card debt now!” Even though many companies claim to be able to eliminate your debt, the reality is that these offers often lead to consumers facing more financial hardship, destroyed credit ratings and even legal trouble.

That's why it's so important for you to be aware of debt elimination scams so you can avoid becoming a victim. Remember that no one can eliminate an obligation to pay a debt simply by paying a small fee. If it sounds too good to be true, it probably is.

The Scams

There are various illegal schemes that claim to eliminate a consumer's obligation to repay a mortgage, credit card, student loan or other debt through the use of specially prepared documents. The organizers of these schemes concoct phony documents based on the consumer's debt that are presented to the consumer's banks, mortgage company, finance company or other lending institution in an attempt to satisfy the debt.

False Documents.

The false documents usually question the authenticity of financial obligations and cite false claims about the Federal Reserve System, U.S. currency or other federal or state government programs as the legal justification for the debt elimination program.

For example, some documents specifically refer to the elimination of debt through the use of a “Federal Reserve-approved” procedure. This scam asks for an upfront fee from the consumer that will usually run from several hundred dollars to several thousand dollars. In return, the debt elimination company promises to take certain actions to get creditors to either forgive a consumer's debt or reduce it significantly. The documents used by the perpetrators are completely false and all of the consumer's financial responsibilities remain intact.

Notably, the Federal Reserve is not involved in any program aimed at eliminating consumer debt obligations. So debt elimination programs that claim Federal Reserve approval and the satisfaction of legitimate debts through the presentation of suspicious documents are completely false.

Fraudulent Filing.

Scam artists send to a consumer a package of forms, including one page from the Office of the Comptroller of the Currency (OCC). Scam artists want the consumer to only sign this one page. They then complete the rest of the forms and fraudulently file the papers with the OCC after collecting hundreds and sometimes thousands of dollars from the consumer.

Phony Arbitration.

Scam artists issue a phony arbitration award from an arbitrator not authorized under the debt agreement. It's also false that three or more people can set up individual arbitration companies, create an arbitration award for a fraction of the debt owed, have the award certified by the two other companies, and submit the award and payment to the creditor to fully satisfy the total payment of the debt.

Nonexistent Trust Accounts.

A consumer could be fooled by the use of a nonexistent “trust account” supposedly held in that person's name at the United States Department of the Treasury or some other part of the federal government.

False Claims Regarding a Contract's Legality.

Another scam involves a notice sent to the creditor stating the contract or note is illegal and therefore the borrower does not have to pay the debt and may even be entitled to a compensatory award.

Inaccurate or Distorted Information.

The OCC reports other schemes where a scam is conducted by using inaccurate or distorted information about laws and regulations governing debt. Don't let debt elimination scam artists tell you that borrowing is a con game; that banks and other creditors do not have the authority to lend money or issue credit; or that secret information or laws can be used to eliminate debt.

How to Avoid Being a Victim

Before completing a business transaction, contact the Chamber of Commerce, Better Business Bureau or the county or state Office of Consumer Affairs in the area where the company is located to get information on the company.

Have You Been the Victim of a Scam?

Any information you have concerning debt elimination scams should be brought to the attention of appropriate local or federal law enforcement.

If the fraudulent scheme was presented via the Internet or e-mail, contact the Internet Crime Complaint Center (IC3) to file a complaint. IC3 is a partnership between the Federal Bureau of Investigation, the National White Collar Crime Center and the Bureau of Justice Assistance.

If the scam proposal was received via the U.S. Postal Service, please file a complaint with the U.S. Postal Inspector Service: Telephone: (888) 877-7644Mail: Inspection Service Support Group, 222 S. Riverside Plaza, Suite 1250, Chicago, IL 60606-6100Or click here to file a complaint online.

Legal Disclaimer: Information found on Ask Doctor Debt is not intended as legal, tax or accounting advice and shouldn’t be used for these purposes. In addition, information found on Ask Doctor Debt shouldn’t replace the advice of your own legal counsel, tax professional or accounting professional.